Q: I'm hoping to start my own business selling auto parts wholesale to local businesses. But how do I launch this kind of business when all I have is the idea, not the know-how?

Answer:

There are several legal aspects to starting a business. Here are three very important ones:

Picking a corporate structure:

First, do some research into the various forms of legal and tax business structures to choose from. Your business can be a sole proprietorship, a partnership, a limited liability partnership, a limited liability company, or an S or C corporation. Each has different legal and tax consequences that you should understand. You can talk to an accountant and lawyer, or you can risk doing the research and formation on your own and then fix mistakes later when your business has enough revenues.

In most cases, you should pick a structure, which gives your business a separate legal and tax identity from yourself. This allows you to do be sure that for tax and legal purposes, the money and acts of your business are separate from your own. For example, if you sell a faulty auto part, get sued and lose, the company's assets can be taken, but not your personal assets; the losses from the lawsuit would be deducted on your company's tax statements, not your personal one. A sole proprietorship is when a person does business as himself--which means that legally and for tax purposes, you are one entity. Many businesses start as sole proprietorships and then change their structure later.

Picking a company name:

The name of a business is called a trade name. If a company does business under a name other than its legal name, it is called using an assumed name, a fictitious name or doing business as (dba) another name.

Sometimes a business uses another name because it wants to be known under several names, or a different name, without having to change its legal name (which typically requires a lot of paperwork). Other times, a company uses a fictitious name because when it tried to register to do business in a new state or county, it found that the company's actual name was already taken. States and counties will not permit more than one business to register each name. So if you're a sole proprietor and you want to use the name Autoparts Empire instead of your own name, Jane Doe, you would need to register Autoparts Empire with the Secretary of State and/or with your county as a fictitious name.

Although the name of a company, by itself, is not a trademark, the name of a company may be a trademark if the company also uses its trade name as the name of a product or service. The trademark office will not register a company name that is not also trademark, a word used to identify a good or a service to consumers. When you pick your business name, you want to be careful not to pick a trademark. To have certainty in avoiding this, you need to do a complete trademark search with the advice of an attorney. If you don't have the money for an attorney, then you can take these risks until you can afford to do a search later.

Getting a business license:

After you have created your legal structure and, if needed, picked a fictitious name that you've registered with the county and/or state, then you can go to your county government and get a business license. This is a cheap and usually simple procedure, which basically gives you permission to do business from your county. Be sure to bring all your legal and government paperwork, as it will be required to register your business. And since you have all that paper with you, you might as well go by the bank and open a bank account in your company's name as well.

All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.

1 Readers are cautioned not to rely on this article as legal advice as it is
no substitution for a consultation with an attorney and an accountant in your state. Based
on jurisdiction and time, the law varies and changes.